The Budget proposals announced by the Finance Minister could put brakes on the growth story of auto sector in India which had recently started to recover from the downturn.

The increase in excise duty rates on small cars from 22% to 24% and on luxury cars from 22%+15,000 to 27% would severely hit the sales volumes of all auto companies. Further, import of high-end Completely Built Units (CBU's) would also become costlier as they would now attract an effective rate of Customs duty of approximately 138% on account of increase in Basic Customs Duty rate from 60% to 75%.

Increase in the merit rate of excise duty and service tax from 10% to 12% clubbed with an increase in excise duty on automotive chassis may impact the overall manufacturing costs of auto companies.

However, there is some respite in the form of exemption from levy of Education Cess and Secondary and Higher Education Cess on CVD component of customs duty on imports of goods in India. Further, the Government has also promoted the Electrical and Hybrid Vehicle Segment by reducing excise duty rates on specific parts supplied to the manufacturers of such vehicles.